Frankfurt, Oct 1 (BUS): Eurozone inflation hit a 13-year high last month and appears likely to jump higher, adding to the uncertainty of the European Central Bank’s benign view of the biggest price hike since before the financial crisis. Globalism.
Consumer inflation in the 19 countries that share the euro accelerated to 3.4% year-on-year in September from 3% the previous month, the highest reading since September 2008 and ahead of analysts’ expectations of 3.3%, data from Eurostat, the European Union’s statistics agency showed on Friday. , according to Reuters.
Prices rose mostly on the back of higher energy costs, mostly a reflection of the oil price crash that occurred during the COVID-19 pandemic, but the impact of production and shipping bottlenecks was also seen with durable goods prices up 2.3% from August.
With rising natural gas prices and bottlenecks affecting everything from car production to computer manufacturing, inflation could reach 4% by the end of the year, double the European Central Bank’s target, ahead of what the bank expects to be a relatively rapid decline in early 2022.
But disruptions in the supply chain appear to be getting worse, increasing the potential for the inflation hump to seep into core prices and create more lasting pressures as companies adjust pricing and wage policy.
For now, the European Central Bank is sticking to its narrative that this bout of inflation will end quickly and price growth will remain below its target for years to come, requiring lower borrowing costs.
But European Central Bank President Christine Lagarde took a more cautious tone this week, citing increased inflation risks, even as she called for patience and cautioned against overreaction.
Meanwhile, market economists are changing their views, arguing that central banks may be underestimating inflation risks.
“We think there are high chances that this inflation will be less transitory than all central banks, including the ECB, are suggesting,” said Luigi Speranza, economist at BNP Paribas.
“Consumers may begin to demand higher wages and firms may absorb them, with the understanding that they may pass on a higher cost through higher final prices.”
Core prices, which policymakers are watching closely as they filter volatile food and energy prices, also accelerated in September.
Core inflation excluding food and energy rose to 1.9% from 1.6%, as did a narrower measure that also excludes alcohol and tobacco.
Despite growing concern about inflation, European Central Bank policy makers are likely to err on the side of caution after the bank lowered its target for nearly a decade.
She said she was ready to overrun temporarily to ensure inflation truly returned to target, as combating weak price growth required unprecedented efforts, including ultra-negative interest rates and trillions of euros in asset purchases.
However, the pandemic emergency stimulus plan is expected to expire at 1.85 trillion euros next March, and the European Central Bank is likely to tighten moderate policy in the coming months.
NS